Hard landing for China’s private jet market

4

Wealthy Chinese businesspeople are resorting to chartering private jets rather than buying them because of economic uncertainty, stricter capital controls and Beijing’s crackdown on corruption.

The business jet fleet in greater China grew at a breakneck pace in the years before President Xi Jinping took power in 2012 but sales have dropped sharply since then because of the slowing economy and fears that luxury purchases would attract the interest of Beijing’s graftbusters.

Greater China, including Hong Kong, Macau and Taiwan, had 477 private jets at the end of last year, more than 40 per cent of the total in the Asia-Pacific region, according to Asian Sky Group, a private jet consultancy based in Hong Kong. While that is a sharp rise from just 118 in 2009, the fleet is forecast to grow by just 1 per cent this year.

Industry experts say that with demand for private aviation still strong, charter companies such as Deer Jet and Hong Kong Jet, owned by the acquisitive Chinese conglomerate HNA, and VistaJet are seeing an uptick in demand.

“The cooling-off of the desire to buy your own aircraft has resulted in people still wanting to fly privately but not having the hassle and financial exposure as well as the political exposure,” said Ian Moore, chief commercial officer of VistaJet, which has a fleet of 72 business jets and sells packages starting from 100 hours of flying time.

Privately owned VistaJet, which recently launched a sales channel on WeChat, the popular Chinese internet platform, saw a 16 per cent increase in flights going to China last year. It says Chinese customers now account for 17 per cent of its global customer base, with Kuala Lumpur, Singapore, Seoul and cities in Japan among the most popular destinations for Chinese passengers.

Jeffrey Lowe, managing director of Asian Sky, said the chartering business in China was also initially hit by President’s Xi’s graft crackdown and austerity drive.

But demand is now coming back as private businesses and state-owned companies focus on the practical benefits of business aviation, rather than merely seeing it as a status symbol.

“Six years ago the chairman may have bought a private jet because his buddies had one,” he said, “Now most people are using them for genuine business purposes because of the increased productivity and efficiency they offer.”

Paul Jebely, an aviation lawyer for Pillsbury in Hong Kong, said earlier attempts to promote chartering and fractional ownership in China had struggled because wealthy Chinese would rather buy their own aircraft outright.

But the corruption crackdown, economic uncertainties in China and abroad, and the recently enhanced capital controls all make purchasing a much less attractive prospect for now.

“The money to fly is there and the desire to be luxurious is there so they’re spending on charter,” he said.

China’s private jet fleet more than tripled in size from 2009 to 2013 because of surging demand from individuals and finance houses such as Minsheng, which jumped into the leasing business.

Analysts say that, as in other sectors where China has over-invested, the tougher economic and political climate is forcing investors to take a more realistic approach.

“With most owners in China it’s an educational process,” said Mr Lowe.

Source